Natural Gas Services Group, Inc. Q2 FY2026 earnings call

Four Core Growth and Value Drivers

• Fleet Optimization: NGS has improved pro forma rental revenue per horsepower per month from $21.56 in Q2 2023 to $28.06 in Q2 2026, a 30% total improvement with a 10% compound annual growth rate. The fleet mix has shifted dramatically to large horsepower units, which now represent 75% of total rented horsepower (up from 61% in Q2 2023), and total rented large horsepower fleet has grown 30% annually to 501,000 horsepower with 99% utilization. Electric motor drive equipment now makes up nearly 10% of the rented fleet, up from 7% pre-Flat Rock acquisition. Management continues to invest in data analytics and a smart platform to enable predictive maintenance, improve uptime, and increase operational efficiency to generate more earnings per existing horsepower.
• Asset Utilization Improvement: NGS reduced days sales outstanding (DSO) from 108 days when the current CEO took office in Q1 2024 to a pro forma 33 days in Q2 2026, unlocking over $40 million in internal cash. The company fully resolved a long-standing income tax receivable, converting $14.1 million in non-cash assets to cash by Q2 2026. The company is actively marketing non-core real estate assets (with a total book value of ~$14 million) for sale or lease, and is working to reduce inventory while improving parts availability and fleet uptime through better procurement and planning.
• Organic Growth: Total available horsepower has increased 285,000 from Q2 2023 to 759,000 in Q2 2026, with an organic annual growth rate of over 10% after adjusting for the Flat Rock acquisition. NGS has accounted for ~12% of total organic growth capital deployed by the four publicly traded pure-play compression companies since the end of 2022, despite starting with only 3% of the group's total horsepower. NGS outpaces peer organic growth (which is in the low to mid single digits annually), and continues to gain market share, with growth concentrated in large horsepower and electric units backed by long-term customer contracts. Long-term demand drivers include growing LNG exports, rising natural gas production, and increasing electricity demand for data centers and behind-the-meter power.
• Accretive M&A: NGS completed the accretive acquisition of Flat Rock in June 2026 for ~$120 million, equal to 6.2x Flat Rock's annualized adjusted EBITDA (a discount to NGS's own valuation multiple). The acquisition added 87,000 rented horsepower, accelerated NGS's electric motor drive strategy (20% of Flat Rock's horsepower is electric), increased horsepower density in the Midland Basin, established critical mass in the Eagleford, diversified the customer base, and added two large public E&P customers. Post-acquisition, NGS has a leverage ratio of 2.77x and $172 million in unused credit facility commitments, retaining substantial financial flexibility for future organic investment and additional M&A.

Strategic and Corporate Updates

• NGS completed redomestication from Colorado to Texas effective July 20, 2026, to adopt more shareholder-friendly governance, including eliminating the staggered board so all directors will stand for annual election starting in 2027.
• Compression demand remains strong, particularly in the Permian Basin which generates ~80% of NGS's rental revenue. High oil prices support rising activity, record Permian production, and rising gas-to-oil ratios, which increase the need for natural gas compression. New compression equipment supply remains constrained due to extended engine and fabrication lead times, supporting high utilization and disciplined pricing for existing providers. Inflationary pressure continues on labor, parts, and lubricant costs (driven by refinery constraints and higher crude prices), which NGS will partially offset through scale and operational improvements.

Natural Gas Services Group (NGS) operates as a single-segment compression rental business, with the following Q2 2026 performance: Total reported rental revenue was a record $49.4 million, up 25% year-over-year (YoY) and 5% sequentially. The Flat Rock acquisition contributed only $1.9 million of rental revenue (half a month of activity) in Q2, with its full quarterly contribution starting in Q3 2026. Rental adjusted gross margin was $30.2 million, up 25.6% YoY, with a rental adjusted gross margin percentage of 61.1%, up 36 basis points YoY. Reported SG&A was $9.9 million, including $3.3 million in Flat Rock transaction costs; underlying adjusted SG&A was $5.8 million, equal to 11.3% of revenue, down from 11.6% YoY. Adjusted EBITDA reached a record $25.1 million, up 27.4% YoY and 3.3% sequentially, with adjusted EBITDA growth outpacing revenue growth due to operating leverage. Reported net income was $3.8 million ($0.30 per diluted share), while adjusted net income (excluding transaction costs) was $6.1 million ($0.47 per diluted share). Operating cash flow for Q2 was $25.4 million, and $48.5 million for H1 2026, up ~50% compared to H1 2025. Total capital expenditures for Q2 were $18.8 million, consisting of $15.3 million in growth capital and $3.4 million in maintenance capital. As of quarter-end, NGS had 759,000 total available horsepower and 670,000 rented horsepower, with rented horsepower up 34.3% YoY. Organic horsepower growth in Q2 was 5,000 units, with 22,000 organic additions in H1 2026 (over half of which were electric motor drive units). Horsepower utilization hit a record 88.3% in Q2 2026, up from 78.6% in Q2 2023. Pro forma full-quarter rental revenue per average horsepower per month (including Flat Rock) was $28.06, up over 5% YoY.

• Full-year 2026 adjusted EBITDA guidance was increased to $103 million to $108 million, up from the prior range of $92.5 million to $97.5 million. The increase reflects a half-month of Flat Rock contribution in Q2 and a full half-year contribution in H2 2026, with the increase essentially representing layered-in contribution from the acquisition on top of maintained core NGS guidance.
• Full-year 2026 organic growth capital expenditure guidance (excluding acquisition consideration) was increased to $60 million to $80 million, up from the prior range of $55 million to $70 million, to reflect additional large horsepower and electric motor drive additions from inherited Flat Rock growth commitments.
• Maintenance capital expenditure guidance was updated to $15 million to $19 million, a modest increase to account for the larger combined fleet post-acquisition.
• The quarterly dividend is maintained at $0.15 per share, a 50% increase from the $0.10 per share dividend initiated one year prior.
• Organic full-year 2026 horsepower deployment guidance was increased to at least 55,000 organic horsepower, up from the prior expectation of 50,000 horsepower.
• Management expects the full-year 2026 effective tax rate to remain in the 25% to 26% range; the elevated Q2 2026 rate of 30.9% was driven by a one-time discrete tax item from Texas franchise tax rule changes and is not considered a run-rate.

• Forward-looking statements are not guarantees of future performance, and actual results may differ materially from projections due to unforeseen risks, which are detailed in NGS's SEC filings (Form 10-Q for Q2 2026, Form 8-Ks) and earnings release.
• Persistent inflationary pressure on operating inputs including labor, parts, and lubricants; while NGS has scale and operational offsets to mitigate some pressure, it is not immune to inflation.
• Extended lead times for new engines and fabrication limit the ability to quickly meet customer demand for new equipment, though NGS has mitigated this by sourcing engines from multiple OEMs.
• M&A integration and synergy capture are not guaranteed; current guidance does not assume material synergies from the Flat Rock acquisition, so synergies represent upside rather than a base case outcome.

Q: Analyst Jim Rolison asked NGS to update the size of its current opportunity set, and what a sustainable long-term capital expenditure growth outlook looks like, given NGS's track record of outpacing industry growth. / A: Management noted that the Flat Rock acquisition has helped NGS expand beyond its historic customer base. While the company will continue to grow with its existing large customers, it also sees opportunities to increase its footprint with existing clients and win new customers. NGS declined to set long-term targets, but reaffirmed its confidence that it will continue to outpace industry organic growth and gain market share, consistent with its historical track record. (198 characters)

Q: Rolison followed up asking what "inning" NGS is in for current fleet optimization, especially with the new Flat Rock customer and assets. / A: Management stated that substantial price increases have already been achieved over the past three years, so future price growth may slow, but pricing improvements will continue. The largest untapped optimization opportunity is operational improvement through data capture and analytics, where NGS is still in the early innings, and this is expected to deliver material long-term financial and customer service benefits. (237 characters)

Q: Analyst Nate Pendleton asked for details on expected synergy opportunities from the Flat Rock integration, and their potential size. / A: Management noted integration is progressing well, with expected opportunities from improved route density, greater procurement scale, parts commonality, higher technician productivity, and fixed cost leverage. No formal synergy target has been set, and current 2026 guidance does not assume material synergies, so any realized synergies will be upside to the current outlook; the acquisition was structured to be attractive even without relying on synergies. (272 characters)

Q: Pendleton followed up asking if extended equipment lead times have changed how NGS evaluates the M&A landscape post-Flat Rock. / A: Management said its M&A framework remains unchanged from prior periods: it evaluates opportunities based on asset quality, customer base, basin exposure, and valuation, regardless of lead time changes. NGS continues to consider whole company acquisitions and partial acquisitions of competitor or customer equipment, and retains sufficient balance sheet capacity to pursue attractive opportunities that fit its criteria. (229 characters)

Q: Analyst Josh Jane asked how much of NGS's fleet will be up for repricing through the end of 2026 and into 2027, and how much is priced below current market rates. / A: Management referenced public disclosures that 78% of rental revenue comes from term contracts (with a weighted average tenor of 2.2 years), leaving 22% on month-to-month contracts that can be repriced immediately. While repricing is not perfectly pro rata, this breakdown gives a reasonable sense of available repricing opportunity. NGS has successfully captured price increases to offset rising costs while maintaining strong customer relationships. (256 characters)