Natural Gas Services Group, Inc. Q2 FY2025 earnings call

• Delivered a record quarter with key metrics driven by exceptional field service, smart enabled fleet, and disciplined execution. Rented horsepower at all-time high. - Initiated inaugural quarterly dividend and authorized share repurchase program. - Brian Tucker, President and COO, to transition out due to family loss, with strong leadership team to assume responsibilities. - Optimizing fleet assets, improving systems platforms, and using operational data to optimize resources. - Midland fabrication facility classified as held for sale. - Growth CapEx to EBITDA gap highlights strong balance sheet and market share gains. - M&A market active, expecting more activity in second half with disciplined approach to strategic accretive opportunities.

Total revenue for the second quarter was $41.4 million, up 8% from the prior year quarter. Rental revenue increased 13% year-over-year to $39.6 million. Second quarter adjusted EBITDA was a record $19.7 million, and first half adjusted EBITDA was $39 million. Rented horsepower ended the quarter at an all-time high, with fleet utilization improved. Rental revenue and rental gross margin were strong due to higher rented horsepower, mix shift to larger units, and increased pricing. Total adjusted gross margin was $24.2 million, up $3.2 million year-over-year but down $0.1 million sequentially, primarily due to idle facility costs related to the Midland closure.

• Raised 2025 adjusted EBITDA guidance to $76 million to $80 million from $74 million to $79 million. - 2025 growth capital expenditures expected to be $95 million to $115 million, with more than half deployed in second half. - No 2026 guidance provided yet, but expect growth CapEx to outpace larger peers based on contracted opportunities for 2026. - 2025 maintenance CapEx expected to be $11 million to $14 million, return on invested capital unchanged.

• Macro and commodity price uncertainty, which are out of management's control. - Labor issues, particularly in the Permian Basin, as a key challenge that can be partially controlled through fleet utilization improvements.

Q: Rob Brown asked about the opportunity pipeline, including areas of activity and timing.

A: Justin Jacobs said opportunities are mostly for 2026, with majority in Permian Basin but broad based across basins.

Q: Rob Brown also asked about rental gross margin sustainability.

A: Justin Jacobs said gross margins in low 60s are sustainable.

Q: Selman Akyol asked about market share reasons and emissions role.

A: Justin Jacobs said market share gains due to growth CapEx to EBITDA gap and emissions characteristics of fleet.

Q: Selman Akyol asked about 2026 vs 2025 comparison.

A: Justin Jacobs said difficult to provide direct comparison.

Q: Connor Jensen asked about horsepower divestments and new opportunities.

A: Justin Jacobs said ongoing review of small and medium horsepower, with new opportunities in gassy basins for 2026.

Q: John Daniel asked about new customers vs existing and equipment useful life.

A: Justin Jacobs said dollar amount of inquiries skews to existing customers, and equipment useful life depends on maintenance with book lives for small, medium, large horsepower as 15, 20, 25 years respectively.

Q: John Daniel asked about greatest stress point.

A: Justin Jacobs said key stresses include labor in Permian Basin and fleet utilization in small/medium horsepower.