Natural Gas Services Group NYSE: NGS reported record second-quarter operating and financial results, supported by higher rental revenue, improved fleet utilization, pricing gains and the June acquisition of Flatrock Compression.
Chief Executive Officer Justin Jacobs said the company’s growth strategy continues to center on fleet optimization, asset utilization, organic expansion and accretive acquisitions. He said the Flatrock transaction materially expanded NGS’s scale, electric-drive capabilities and customer presence in key producing regions.
Record revenue and EBITDA
Chief Financial Officer Ian Eckert said second-quarter rental revenue rose 25% year over year to a record $49.4 million, while increasing 5% sequentially. The growth reflected both additional deployed horsepower and pricing execution. Flatrock contributed approximately $1.9 million in rental revenue during the quarter, representing about half a month of results after the acquisition closed.
Rental adjusted gross margin increased 25.6% year over year to $30.2 million, and rental adjusted gross margin percentage rose 36 basis points to 61.1%. Eckert said the margin improvement came despite inflationary pressure on labor, lubricants, parts and other operating inputs.
Adjusted EBITDA reached a record $25.1 million, up 27.4% from the year-ago quarter and 3.3% sequentially. Reported net income was $3.8 million, or $0.30 per diluted share, compared with $5.2 million, or $0.41 per diluted share, a year earlier. The comparison included about $3.3 million in Flatrock-related transaction expenses. Excluding those costs, adjusted net income was $6.1 million, or $0.47 per diluted share.
The company said its second-quarter effective tax rate was 30.9%, above its expected full-year range of 25% to 26%, because of a one-time state tax item related to changes in Texas franchise tax depreciation rules.
Fleet growth, utilization and pricing
NGS ended June with about 759,000 available horsepower and 670,000 rented horsepower. Rented horsepower increased 34.3% year over year, including the addition of approximately 87,000 rented horsepower through Flatrock.
Horsepower utilization reached a record 88.3%, compared with 78.6% three years earlier. Jacobs said the company has shifted its fleet toward larger units, which generally carry better economics, longer customer contracts and deeper customer relationships. The company’s rented large-horsepower fleet totaled 501,000 horsepower and was 99% utilized at quarter-end, accounting for 75% of total rented horsepower.
On a pro forma basis assuming a full quarter of Flatrock revenue, rental revenue per average horsepower per month was $28.06, up more than 5% from the prior-year period. Jacobs said the measure has increased by more than 30% over the past three years.
Electric motor-drive equipment is also becoming a larger component of the fleet. It represented nearly 10% of rented fleet horsepower, and electric units accounted for well over half of NGS’s organic horsepower additions during the first half of 2026.
- Organic additions totaled approximately 5,000 horsepower in the second quarter.
- First-half organic additions totaled approximately 22,000 horsepower.
- NGS now expects to deploy at least 55,000 horsepower organically in 2026, up from a prior expectation of 50,000 horsepower.
Flatrock acquisition expands platform
NGS acquired Flatrock for approximately $120 million, consisting of about $108.9 million in cash and $10 million in NGS common stock. Jacobs said the transaction was valued at approximately 6.2 times Flatrock’s last-quarter annualized adjusted EBITDA before synergies.
About $100.6 million, or roughly 85%, of the preliminary purchase price allocation was assigned to the rental fleet, while less than $1 million was recorded as goodwill, according to Eckert.
Flatrock increased NGS’s density in the Midland Basin, established a larger presence in the Eagle Ford and added two large publicly traded exploration and production customers in the Midland Basin. About 20% of Flatrock’s horsepower is electric, compared with 7% for legacy NGS before the deal.
Eckert said integration was progressing well, with potential opportunities in route density, procurement, equipment and parts standardization, technician productivity and fixed-cost leverage. However, he said the company’s current guidance does not assume material labor-related synergies.
Guidance, capital spending and balance sheet
NGS raised its full-year 2026 adjusted EBITDA guidance to a range of $103 million to $108 million, from prior guidance of $92.5 million to $97.5 million. Jacobs said the updated range incorporates Flatrock’s partial second-quarter contribution and its expected full second-half contribution.
The company also raised its expected growth capital expenditures to $60 million to $80 million, excluding acquisition consideration, from $55 million to $70 million previously. Maintenance capital expenditure guidance was set at $15 million to $19 million, reflecting the larger combined fleet.
Second-quarter capital expenditures totaled $18.8 million, including $15.3 million in growth capital and $3.4 million in maintenance capital. Operating cash flow was approximately $25.4 million for the quarter and $48.5 million for the first half, a roughly 50% increase from the first half of 2025.
At quarter-end, NGS had approximately $328 million outstanding under its credit facility, about $135 million of available borrowing capacity under its borrowing base and more than $170 million of unused facility capacity. Bank covenant leverage was 2.77 times, below the company’s 3.5-times leverage covenant.
The company returned approximately $1.9 million to shareholders through its $0.15-per-share second-quarter dividend and subsequently announced another $0.15-per-share dividend for the third quarter.
Jacobs said compression demand remained strong, particularly in the Permian Basin, which represents approximately 80% of rental revenue. He cited rising production, increasing gas-to-oil ratios, LNG export growth, power-generation demand and constrained equipment supply as supportive industry conditions, while noting continued inflationary pressure on labor, parts and lubricants.
NGS also completed its re-domestication from Colorado to Texas effective July 20. Jacobs said the new governing documents eliminate the company’s staggered board, with all directors scheduled to stand for election annually beginning at next year’s annual meeting.
About Natural Gas Services Group (NYSE:NGS)
Natural Gas Services Group, Inc 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.
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