UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 21, 2008
NATURAL GAS SERVICES GROUP, INC
(Exact name of registrant as specified in its charter)
| Colorado | 75-2811855 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
2911 SCR 1260
Midland, Texas 79706
(Address of principal executive offices)
(432) 563-3974
(Issuer’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| □ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| □ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| □ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| □ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. Results of Operations and Financial Condition. |
On February 21, 2008, Natural Gas Services Group, Inc. issued a press release announcing its results of operations for the fourth quarter and fiscal year ended December 31, 2007. The press release issued on February 21, 2008 is furnished as Exhibit No. 99 to this Current Report on Form 8-K. Natural Gas Services Group's annual report on Form 10-K and its reports on Forms 10-Q and 8-K and other publicly available information should be consulted for other important information about Natural Gas Services Group, Inc.
The information in this Current Report on Form 8-K, including Exhibit No. 99 hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section. The information in this Current Report shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The Exhibit listed below is furnished as an Exhibit to this Current Report on Form 8-K.
| Exhibit No. | Description of Exhibit |
| 99 | Press release issued February 21, 2008 |
| (furnished pursuant to Item 2.02) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Stephen C. Taylor
Stephen C. Taylor, Chairman
of the Board, President and
Chief Executive Officer
Dated: February 20, 2008
EXHIBIT INDEX
| Exhibit No. | Description of Exhibit |
| 99 | Press release issued February 20, 2008 |
| (furnished pursuant to Item 2.02) |
Exhibit 99
| FOR IMMEDIATE RELEASE | NEWS |
| February 21, 2008 | Amex – NGS |
NATURAL GAS SERVICES GROUP ANNOUNCES A 62% INCREASE IN NET INCOME AND
A 53% INCREASE IN EPS (DILUTED) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2007
56% Increase In Net Income For The Three Months Ended December 31, 2007 to $3.6 Million
58% Increase In EPS (Diluted) For The Three Months Ended December 31, 2007 to $0.30 per share
MIDLAND, Texas, February 21, 2008 – Natural Gas Services Group, Inc. (AMEX:NGS), a leading provider of equipment and services to the natural gas industry, announces its financial results for the fourth quarter and twelve months ended December 31, 2007.
| (in thousands of dollars, except per share amounts) | Three Months Ended December 31, | Change | Twelve Months Ended December 31, | Change | ||||||||||||||||||||
| 2006 | 2007 | 2006 | 2007 | |||||||||||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||||||||||
| Revenue | $ | 16,563 | $ | 19,502 | 18 | % | $ | 62,729 | $ | 72,489 | 16 | % | ||||||||||||
| Operating income | $ | 3,476 | $ | 5,020 | 44 | % | $ | 12,131 | $ | 18,589 | 53 | % | ||||||||||||
| Net income | $ | 2,320 | $ | 3,614 | 56 | % | $ | 7,588 | $ | 12,278 | 62 | % | ||||||||||||
| EPS (Basic) | $ | 0.19 | $ | 0.30 | 58 | % | $ | 0.67 | $ | 1.02 | 52 | % | ||||||||||||
| EPS (Diluted) | $ | 0.19 | $ | 0.30 | 58 | % | $ | 0.66 | $ | 1.01 | 53 | % | ||||||||||||
| EBITDA | $ | 5,737 | $ | 7,279 | 27 | % | $ | 19,541 | $ | 27,358 | 40 | % | ||||||||||||
| Weighted avg. shares outstanding: | ||||||||||||||||||||||||
| Basic | 12,016 | 12,082 | 11,405 | 12,071 | ||||||||||||||||||||
| Diluted | 12,078 | 12,133 | 11,472 | 12,114 | ||||||||||||||||||||
Revenue: Total revenue increased from $16.6 million to $19.5 million, or 18%, for the three months ended December 31, 2007, compared to the same period ended December 31, 2006. This increase was the result of a 27% growth in rental revenue and a 12% increase in sales revenue. Total revenues for the comparable twelve month periods increased 16%, or $9.8 million. This increase was the result of 29% higher rental revenue and 8% greater sales revenue.
Operating income: Operating income increased from $3.5 million to $5.0 million, or 44%, for the three months ended December 31, 2007, compared to the same period ended December 31, 2006. Operating income increased from $12.1 million to $18.6 million, or 53%, for the twelve months ended December 31, 2007 compared to the same period ended December 31, 2006. Growth in operating income benefited primarily from the appreciably higher compressor sales gross margins achieved in the comparable quarterly and year-to-date periods.
Net income: Net income for the three months ended December 31, 2007, increased 56% to $3.6 million, as compared to net income of $2.3 million for the same period in 2006. Net income for the twelve months ended December 31, 2007 increased 62% to $12.3 million, as compared to net income of $7.6 million for the same period in 2006. The increase for the twelve months of 2007 was mainly the result of increased operating income, a lower income tax rate, and a lower interest expense from our reduced debt balances.
EBITDA: EBITDA (see discussion of EBITDA at the end of this release) increased 27% to $7.3 million for the fourth quarter ended December 31, 2007, versus $5.7 million for the same period in 2006. EBITDA grew 40% to $27.4 million for the twelve months ended December 31, 2007, compared to $19.5 million for the same period in 2006.
Earnings per Share: Earnings per diluted share were $0.30 during the three months ending December 31, 2007 as compared to $0.19 during the same 2006 period, a 58% increase. Comparing the twelve months of 2006 versus 2007, our earnings per diluted share grew from $0.66 to $1.01, or 53%.
Steve Taylor, President and CEO of Natural Gas Services Group, Inc. said, “Our excellent financial results not only verify our ability to execute on our plan, but continue to confirm that we are a leader in our market. We continue to be encouraged by the opportunities we see and our ability to capitalize on them and anticipate adding a record 300-350 rental compressors to the fleet in 2008.”
The Company has scheduled a conference call Thursday, February 21, 2008 at 10:00 a.m., Central Standard Time, to discuss 2007 Fourth Quarter and Twelve Months Financial Results.
What: Natural Gas Services Group, Inc. 2007 Fourth Quarter and Twelve Months Financial Results Conference Call
When: Thursday, February 21, 2008 at 10:00 a.m., CST
How: Live via phone by dialing 800-624-7038. Code: Natural Gas Services. Participants to the Conference call should call in at least 5 minutes prior to the start time.
Steve Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing fourth quarter and twelve months financial results.
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., coalbed methane, gas shales 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.
| For More Information, Contact: |
| Jim Drewitz, Investor Relations |
| 830-669-2466 |
| jim@jdcreativeoptions.com |
| Or visit the Company's website at www.ngsgi.com |
“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. The reconciliation of net income to EBITDA and gross margin is as follows:
(in thousands of dollars) | Three months ended December 31, | Twelve months ended December 31, | ||||||||||||||
| 2006 | 2007 | 2006 | 2007 | |||||||||||||
| Net income | $ | 2,320 | $ | 3,614 | $ | 7,588 | $ | 12,278 | ||||||||
| Interest expense | 339 | 276 | 1,646 | 1,155 | ||||||||||||
| Provision for income taxes | 1,193 | 1,367 | 4,287 | 6,455 | ||||||||||||
| Depreciation and amortization | 1,885 | 2,022 | 6,020 | 7,470 | ||||||||||||
| EBITDA | $ | 5,737 | $ | 7,279 | $ | 19,541 | $ | 27,358 | ||||||||
| Other operating expenses | 1,445 | 1,551 | 5,270 | 5,324 | ||||||||||||
| Other expense (income) | (375 | ) | (237 | ) | (1,390 | ) | (1,299 | ) | ||||||||
| Gross margin | $ | 6,807 | $ | 8,593 | $ | 23,421 | $ | 31,383 | ||||||||
We define gross margin 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 our management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. Because we use capital assets, depreciation expense is a necessary element of our costs and our ability to generate revenue and selling, general and administrative expense is a necessary cost to support our 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 of our performance. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP. Our 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.
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 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
| December 31, | ||||||||
| 2006 | 2007 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 4,391 | $ | 245 | ||||
| Short-term investments | 25,052 | 18,661 | ||||||
| Trade accounts receivable, net of doubtful accounts of $110, both periods | 8,463 | 11,322 | ||||||
| Inventory, net of allowance for obsolescence of $347 and $273, respectively | 16,943 | 20,769 | ||||||
| Prepaid income taxes | — | 3,584 | ||||||
| Prepaid expenses and other | 321 | 641 | ||||||
| Total current assets | 55,170 | 55,222 | ||||||
Rental equipment, net of accumulated depreciation of $11,320 and $16,810, respectively | 59,866 | 76,025 | ||||||
Property and equipment, net of accumulated depreciation of $3,679 and $4,792, respectively | 6,714 | 8,580 | ||||||
Goodwill, net of accumulated amortization of $325, both periods | 10,039 | 10,039 | ||||||
| Intangibles, net of accumulated amortization of $819 and $1,145, respectively | 3,650 | 3,324 | ||||||
| Other assets | 113 | 43 | ||||||
| Total assets | $ | 135,552 | $ | 153,233 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Current portion of long-term debt and subordinated notes | $ | 4,442 | $ | 4,378 | ||||
| Line of credit | — | 600 | ||||||
| Accounts payable | 2,837 | 4,072 | ||||||
| Accrued liabilities | 2,077 | 3,990 | ||||||
| Current income tax liability | 1,056 | 3,525 | ||||||
| Deferred income | 225 | 81 | ||||||
| Total current liabilities | 10,637 | 16,646 | ||||||
| Long term debt, less current portion | 12,950 | 9,572 | ||||||
| Subordinated notes-related parties, less current portion | 1,000 | — | ||||||
| Deferred income tax payable | 9,764 | 12,635 | ||||||
| Total liabilities | 34,351 | 38,853 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, 5,000 shares authorized, no shares outstanding | — | — | ||||||
| Common stock, 30,000 shares authorized, par value $0.01;12,046 and 12,085 shares issued and outstanding, respectively | 120 | 121 | ||||||
| Additional paid-in capital | 82,560 | 83,460 | ||||||
| Retained earnings | 18,521 | 30,799 | ||||||
| Total stockholders' equity | 101,201 | 114,380 | ||||||
| Total liabilities and stockholders' equity | $ | 135,552 | $ | 153,233 | ||||
NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
| For the Years Ended December 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
| Revenue: | ||||||||||||
| Sales, net | $ | 30,278 | $ | 38,214 | $ | 41,088 | ||||||
| Service and maintenance income | 2,424 | 979 | 964 | |||||||||
| Rental income | 16,609 | 23,536 | 30,437 | |||||||||
| Total revenue | 49,311 | 62,729 | 72,489 | |||||||||
| Operating costs and expenses: | ||||||||||||
| Cost of sales, exclusive of depreciation stated separately below | 23,331 | 29,629 | 28,124 | |||||||||
| Cost of service, exclusive of depreciation stated separately below | 1,479 | 735 | 600 | |||||||||
| Cost of rental, exclusive of depreciation stated separately below | 6,528 | 8,944 | 12,382 | |||||||||
| Selling, general and administrative expense | 4,890 | 5,270 | 5,324 | |||||||||
| Depreciation and amortization | 4,224 | 6,020 | 7,470 | |||||||||
| Total operating costs and expenses | 40,452 | 50,598 | 53,900 | |||||||||
| Operating income | 8,859 | 12,131 | 18,589 | |||||||||
| Other income (expense): | ||||||||||||
| Interest expense | (1,997 | ) | (1,646 | ) | (1,155 | ) | ||||||
| Other income | 199 | 1,390 | 1,299 | |||||||||
| Total other income (expense) | (1,798 | ) | (256 | ) | 144 | |||||||
| Income before provision for income taxes | 7,061 | 11,875 | 18,733 | |||||||||
| Provision for income taxes: | ||||||||||||
| Current | 207 | 1,743 | 3,525 | |||||||||
| Deferred | 2,408 | 2,544 | 2,930 | |||||||||
| Total income tax expense | 2,615 | 4,287 | 6,455 | |||||||||
| Net income | 4,446 | 7,588 | 12,278 | |||||||||
| Earnings per common share: | ||||||||||||
| Basic | $ | 0.59 | $ | 0.67 | $ | 1.02 | ||||||
| Diluted | $ | 0.52 | $ | 0.66 | $ | 1.01 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 7,564 | 11,405 | 12,071 | |||||||||
| Diluted | 8,481 | 11,472 | 12,114 | |||||||||
NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| For the Years Ended December 31, | ||||||||||||
| 2005 | 2006 | 2007 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 4,446 | $ | 7,588 | $ | 12,278 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 4,224 | 6,020 | 7,470 | |||||||||
| Deferred taxes | 2,408 | 2,544 | 2,930 | |||||||||
| Employee stock option expense | 135 | 376 | 541 | |||||||||
| Loss (gain) on disposal of assets | (28 | ) | 13 | (1 | ) | |||||||
| Changes in current assets: | ||||||||||||
| Trade accounts and other receivables | (1,352 | ) | (2,271 | ) | (2,859 | ) | ||||||
| Inventory | (5,699 | ) | 749 | (3,826 | ) | |||||||
| Prepaid expenses and other | (362 | ) | 135 | (3,904 | ) | |||||||
| Changes in current liabilities: | ||||||||||||
| Accounts payable and accrued liabilities | 337 | (3 | ) | 3,228 | ||||||||
| Current income tax liability | 187 | 849 | 2,581 | |||||||||
| Deferred income | (855 | ) | 122 | (144 | ) | |||||||
| Other assets | 348 | (46 | ) | (25 | ) | |||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 3,789 | 16,076 | 18,269 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property and equipment | (17,708 | ) | (27,684 | ) | (25,307 | ) | ||||||
| Purchase of short-term investments | — | (38,252 | ) | (2,609 | ) | |||||||
| Redemption of short-term investments | — | 13,200 | 9,000 | |||||||||
| Assets acquired, net of cash | (7,584 | ) | — | — | ||||||||
| Proceeds from sale of property and equipment | 264 | 73 | 95 | |||||||||
| Changes in restricted cash | 2,000 | — | — | |||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (23,028 | ) | (52,663 | ) | (18,821 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Net proceeds from line of credit | 300 | 1,375 | 600 | |||||||||
| Proceeds from long-term debt | 21,517 | 68 | — | |||||||||
| Repayments of long-term debt | (13,077 | ) | (9,581 | ) | (4,442 | ) | ||||||
| Repayment of line of credit | — | (1,675 | ) | — | ||||||||
| Proceeds from exercise of stock options and warrants | 13,085 | 357 | 248 | |||||||||
| Proceeds from sale of stock, net of transaction costs | — | 47,163 | — | |||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 21,825 | 37,707 | (3,594 | ) | ||||||||
| NET CHANGE IN CASH | 2,586 | 1,120 | (4,146 | ) | ||||||||
| CASH AT BEGINNING OF PERIOD | 685 | 3,271 | 4,391 | |||||||||
| CASH AT END OF PERIOD | $ | 3,271 | $ | 4,391 | $ | 245 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
| Interest paid | $ | 1,877 | $ | 1,692 | $ | 1,191 | ||||||
| Income taxes paid | $ | 24 | $ | 894 | $ | 4,620 | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Assets acquired for issuance of subordinated debt | 3,000 | — | — | |||||||||
| Assets acquired for issuance of common stock | 5,120 | — | — | |||||||||