Natural Gas Services Group Announces Earnings for the Three Months Ended March 31, 2010

MIDLAND, Texas, May 10 /PRNewswire-FirstCall/ -- Natural Gas Services Group, Inc. (NYSE: NGS), a leading provider of gas compression equipment and services to the natural gas industry, announces its financial results for three months ended March 31, 2010.

Revenue: Total revenue decreased from $20.0 million to $11.5 million, or 42.3%, for the three months ended March 31, 2010, compared to the same period ended March 31, 2009. This was mainly the result of decreased compressor unit sales and compressor rental revenue due to the decline in the natural gas industry.  Sales revenue decreased 78.9%, rental revenue decreased 22.8%, and service and maintenance revenue decreased 31.2%.

Gross Margins: Overall gross margins increased to 57.2% for the three months ended March 31, 2010, up from 52.9% for the same period ended March 31, 2009. In sequential quarters, gross margins increased from 49% to 57% of revenue. These increases were primarily the result of a product mix shift as the ratio of higher margin rental revenue increased relative to sales revenue.  Rental revenue grew to 85.5% of our total revenue for the quarter ended March 31, 2010 compared to 63.9% for the same period ended March 31, 2009.

Net income:  Net income for the three months ended March 31, 2010 decreased to $1.4 million, when compared to net income of $3.8 million for the same period in 2009. Net income margins decreased from 19% to 12% in the year-over-year periods, but held steady at 12% for sequential quarters.  These decreases were mainly the result of the severe downturn in compressor unit sales experienced industry-wide.

Earnings per share:  Our earnings per diluted share were $0.11 for the three months ended March 31, 2010 as compared to $0.31 for the same 2009 period.

EBITDA:  EBITDA decreased to $5.1 million, or 44% of revenue, for the three months ended March 31, 2010 versus $9.0 million, or 45% of revenue, for the same period ended March 31, 2009.  EBITDA margins in sequential quarters increased from 40% to 44%. Please see discussion of Non-GAAP Measures in this release.

Cash flow: At March 31, 2010, cash and cash equivalents were approximately $21.6 million, working capital was $42.1 million with a total debt level of $5.9 million, of which approximately $3.9 million was classified as current. Positive net cash flow from operating activities was approximately $8.3 million during the three months ended March 31, 2010 compared to $5.8 million in the year ago quarter.

Commenting on first quarter 2010 results, Stephen Taylor, President and CEO, said:

"Although our first quarter results reflect the comparatively weak state of our industry, we are beginning to see some positive signs. Our rental fleet utilization has currently flattened and, albeit at a low level, we are seeing some new compressor sales orders materialize. We continue to maintain or improve our margins and generate exceptional cash flows and have retired the majority of borrowings on our line of credit. We think the balance of the year will exhibit a slow recovery in our markets, but it may be the end of the year before we may see any definitive signs of progress."

Selected data: The table below shows revenues, percentage of total revenues, gross margin, exclusive of depreciation, and gross margin percentage of each business segment for the three months ended March 31, 2010 and 2009.  Gross margin is the difference between revenue and cost of sales, exclusive of depreciation.

Non GAAP Measures: "EBITDA" reflects net income or loss before interest, taxes, depreciation and amortization.  EBITDA is a measure used by analysts and investors as an indicator of operating cash flow since it excludes the impact of movements in working capital items, non-cash charges and financing costs.  Therefore, EBITDA gives the investor information as to the cash generated from the operations of a business.  However, EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America ("GAAP"), and should not be considered a substitute for other financial measures of performance.  EBITDA as calculated by NGS may not be comparable to EBITDA as calculated and reported by other companies. The most comparable GAAP measure to EBITDA is net income.

Gross margin is defined as total revenue less cost of sales (excluding depreciation and amortization expense).  Gross margin is included as a supplemental disclosure because it is a primary measure used by management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key operating components.  Depreciation expense is a necessary element of costs and the ability to generate revenue and selling, general and administrative expense is a necessary cost to support operations and required corporate activities.  Management uses this non-GAAP measure as a supplemental measure to other GAAP results to provide a more complete understanding the company's performance.  As an indicator of operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP.  Gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

The reconciliation of net income to EBITDA and gross margin is as follows:

Cautionary Note Regarding Forward-Looking Statements:

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties, which may cause NGS's actual results in future periods to differ materially from forecasted results.  Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and gas prices which could cause a decline in the demand for NGS's products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Conference Call Details:

Teleconference: Monday, May 10, 2010 at 9:30 a.m. Central (10:30 a.m. Eastern).  Live via phone by dialing 800-624-7038, pass code "Natural Gas Services".   All attendees and participants to the conference call should arrange to call in at least 5 minutes prior to the start time.

Live Webcast: The webcast will be available in listen only mode via our website www.ngsgi.com, investor relation section.

Webcast Reply: For those unable to attend or participate, a replay of the conference call will be available within 24 hours on the NGS website at www.ngsgi.com.

Stephen Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing the financial results for the three months ended March 31, 2010.

About Natural Gas Services Group, Inc. (NGS):

NGS is a leading provider of small to medium horsepower, wellhead compression equipment to the natural gas industry with a primary focus on the non-conventional gas industry, i.e., coal bed methane, gas shale and tight gas. The Company manufactures, fabricates, rents and maintains natural gas compressors that enhance the production of natural gas wells. The Company also designs and sells custom fabricated natural gas compressors to particular customer specifications and sells flare systems for gas plant and production facilities. NGS is headquartered in Midland, Texas with manufacturing facilities located in Tulsa, Oklahoma, Lewiston, Michigan and Midland, Texas and service facilities located in major gas producing basins in the U.S.

SOURCE Natural Gas Services Group, Inc.