Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report on Form 10-Q for the Period Ended HTML 1.07M June 30, 2022
2: EX-31.1 EX-31.1 Certification of Interim CEO Pursuant to HTML 22K
Section 302 of the Sox Act
3: EX-31.2 EX-31.2 Cert of Principal Acctng Officer Pursuant HTML 21K
to Section 302 of the Sox Act
4: EX-32.1 EX-32.1 Certification of Interim CEO Pursuant to HTML 19K
Section 906 of the Sox Act
5: EX-32.2 EX-32.2 Cert of Principal Acctng Officer Pursuant HTML 19K
to Section 906 of the Sox Act
11: R1 Cover HTML 69K
12: R2 Condensed Consolidated Balance Sheets HTML 125K
13: R3 Condensed Consolidated Balance Sheets HTML 47K
(Parentheticals)
14: R4 Condensed Consolidated Statements of Operations HTML 108K
15: R5 Condensed Consolidated Statements of Stockholders' HTML 90K
Equity
16: R6 Condensed Consolidated Statements of Cash Flows HTML 106K
17: R7 Description of Business HTML 19K
18: R8 Summary of Significant Accounting Policies HTML 65K
19: R9 Inventory HTML 33K
20: R10 Federal Income Tax Receivable HTML 22K
21: R11 Rental Equipment HTML 27K
22: R12 Credit Facility HTML 32K
23: R13 Stock-Based and Other Long-Term Incentive HTML 80K
Compensation
24: R14 (Loss) Earnings per Share HTML 41K
25: R15 Commitments and Contingencies HTML 19K
26: R16 Subsequent Events HTML 19K
27: R17 Summary of Significant Accounting Policies HTML 46K
(Policies)
28: R18 Summary of Significant Accounting Policies HTML 47K
(Tables)
29: R19 Inventory (Tables) HTML 33K
30: R20 Rental Equipment (Tables) HTML 26K
31: R21 Stock-Based and Other Long-Term Incentive HTML 81K
Compensation (Tables)
32: R22 (Loss) Earnings per Share (Tables) HTML 40K
33: R23 Summary of Significant Accounting Policies - HTML 51K
Narrative (Details)
34: R24 Summary of Significant Accounting Policies - HTML 42K
Disaggregation of Revenue (Details)
35: R25 Summary of Significant Accounting Policies - HTML 31K
Contract Balances (Details)
36: R26 Inventory - Schedule of Inventory (Details) HTML 30K
37: R27 Inventory - Schedule of Inventory Allowance HTML 22K
(Details)
38: R28 Federal Income Tax Receivable (Details) HTML 24K
39: R29 Rental Equipment (Details) HTML 29K
40: R30 Credit Facility (Details) HTML 75K
41: R31 Stock-Based and Other Long-Term Incentive HTML 59K
Compensation - Stock Option Activity (Details)
42: R32 Stock-Based and Other Long-Term Incentive HTML 58K
Compensation - Stock Options Outstanding (Details)
43: R33 Stock-Based and Other Long-Term Incentive HTML 40K
Compensation - Summary of Unvested Stock Options
(Details)
44: R34 Stock-Based and Other Long-Term Incentive HTML 23K
Compensation - Stock Option, Narrative (Details)
45: R35 Stock-Based and Other Long-Term Incentive HTML 51K
Compensation - Restricted Stock, Narrative
(Details)
46: R36 Stock-Based and Other Long-Term Incentive HTML 57K
Compensation - Restricted Stock (Details)
47: R37 Stock-Based and Other Long-Term Incentive HTML 37K
Compensation - Other Long-Term Incentive
Compensation, Narrative (Details)
48: R38 (Loss) Earnings per Share - Schedule of Earnings HTML 67K
Per Share, Basic and Diluted (Details)
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‘10-Q’ — Quarterly Report on Form 10-Q for the Period Ended June 30, 2022
(Exact name of registrant as specified in its charter)
iColorado
i75-2811855
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i404 Veterans Airpark Ln., Ste 300
iMidland,
iTexasi79705
(Address of principal executive offices)
(i432)
i262-2700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon
Stock, Par Value $0.01
iNGS
iNew York Stock Exchange
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYesx
No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
iYesx
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
iNon-accelerated
filer ☒
Smaller reporting company i☒
Emerging growth company i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐
No
x
As of August 8, 2022, there were i12,331,147 shares of the Registrant's common stock, $0.01 par value, outstanding.
Adjustments
to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
i12,103
i12,623
Amortization
of debt issuance costs
i24
i7
Deferred
income tax (benefit) expense
i356
(i224)
Stock-based
compensation
i754
i895
Bad
debt allowance
i—
i65
Gain
on sale of assets
(i151)
i—
Loss
(gain) on company owned life insurance
i557
(i188)
Changes
in operating assets and liabilities:
Trade accounts receivables
(i1,472)
(i410)
Inventory
i803
(i1,543)
Prepaid
expenses and prepaid income taxes
(i748)
(i369)
Accounts
payable and accrued liabilities
i2,298
i4,281
Deferred
income
(i1,312)
(i410)
Other
(i231)
i338
NET
CASH PROVIDED BY OPERATING ACTIVITIES
i13,248
i12,752
CASH
FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental equipment, property and other equipment
(i19,173)
(i12,567)
Purchase
of company owned life insurance
(i236)
(i55)
Proceeds
from sale of property and equipment
i224
i—
NET
CASH USED IN INVESTING ACTIVITIES
(i19,185)
(i12,622)
CASH
FLOWS FROM FINANCING ACTIVITIES:
Payments of other long-term liabilities, net
(i2)
(i1)
Payments
of debt issuance costs
i—
(i237)
Repayments
of line of credit, net
i—
(i417)
Purchase
of treasury shares
(i6,660)
(i1,892)
Taxes
paid related to net share settlement of equity awards
(i515)
(i335)
NET
CASH USED IN FINANCING ACTIVITIES
(i7,177)
(i2,882)
NET
CHANGE IN CASH AND CASH EQUIVALENTS
(i13,114)
(i2,752)
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
i22,942
i28,925
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
$
i9,828
$
i26,173
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid
$
i25
$
i9
NON-CASH
TRANSACTIONS
Right of use asset acquired through an operating lease
$
i91
$
i—
5
See
accompanying notes to these unaudited condensed consolidated financial statements.
6
Natural Gas Services Group, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. iDescription
of Business
Natural Gas Services Group, Inc. (the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a provider of natural gas compression equipment and services to the energy industry. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for oil and natural gas production and plant facilities. NGS is headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S.
2. iSummary
of Significant Accounting Policies
i
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan. All
significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.
These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at June 30, 2022 and the results of our operations for the three and six monthsended June 30, 2022 and 2021 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP). These financial statements should
be read in conjunctionwith the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 on file with the SEC. In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented.
The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.
i
Revenue
Recognition Policy
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), except for rental revenue as discussed below. Under ASC 606, revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e. sales and property taxes). Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations.
Nature of Goods and Services
The following is a description of principal activities from which the
Company generates its revenue:
Rental Revenue. The Company generates revenue from renting compressors and flare systems to our customers. These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract period. Our rental contracts typically range from six to i24
months, with our larger horsepower compressors having contract terms of up to i60 months. Our revenue is recognized over time, with equal monthly payments over the term of the contract. After the terms of the contract have expired, a customer may renew their contract
or continue renting on a monthly basis thereafter. In accordance ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.
Sales Revenue. The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts, as well as, exchange/rebuilding customer owned compressors and sale of used rental equipment.
/
7
Custom/fabricated
compressors and flare systems - The Company designs and fabricates compressors and flares based on the customer’s specifications outlined in their contract. Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor or flare package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership. We request some of our customers to make progressive payments as the product is being built; these payments are recorded as a contract
liability on the Deferred Income line on the condensed consolidated balance sheet until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation.
From time to time we recognize revenue when manufacturing is complete and the equipment is ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer will formally request that we ship the equipment per their direction from our manufacturing facility at a later specified date and that we segregate the equipment from our finished goods, such that
they are not available to fill other orders. Per the customer’s agreement change of control is passed to the customer once the equipment is complete and ready for shipment. We have operated using bill and hold agreements with certain customers for many years, with consistent and satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the credit terms on all other sales. All control is maintained by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment. There was iino/
revenue recognized for bill and hold arrangements for the six months ended June 30, 2022 and 2021.
Parts - Revenue is recognized after the customer obtains control of the parts. Control is passed either by the customer taking physical possession or the parts being shipped. The amount of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis.
Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange
a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and installment, or shipment of the compressor.
Used compressors or flares - From time to time, a customer may request to purchase a used compressor or flare out of our rental fleet. Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e., when the customer has taken physical possession or the equipment has been shipped.
Service
and Maintenance Revenue. The Company provides routine or call-out services on customer owned equipment. Revenue is recognized after services in the contract are rendered.
Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days, although terms for specific customers can vary. Also, transaction prices are not subject to variable consideration constraints.
Disaggregation of Revenue
i
The
following table shows the Company's revenue disaggregated by product or service type for the three and six months ended June 30, 2022 and 2021:
The
Company recognized sales revenues of $i1.3 million for the six months ended June 30, 2022 that was included in deferred income at the beginning of 2022. For the year ended December 31, 2021, the Company recognized sales revenues of $i1.1
million that was included in deferred income at the beginning of 2021.
The increase of accounts receivable and decrease of deferred income were primarily due to normal timing differences between our performance and the customers’ payments.
Remaining Performance Obligations
As of June 30, 2022, the Company did inot
have deferred revenue related to unsatisfied performance obligations.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is ione
year or less. These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations.
i
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense in the tax provision in our condensed consolidated statements of operations.
We account for uncertain tax positions in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the condensed consolidated financial statements. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by
tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We have ino liabilities for uncertain tax positions as of June 30, 2022.
Our policy regarding income tax interest and penalties is to expense those items as
interest expense and other expense, respectively.
/
9
i
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit
Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments to ASC Topic 326 require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including trade receivables. For companies that qualify as smaller reporting companies, the amendments in this update are effective for interim and annual periods beginning after January 1, 2023. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements and note disclosures.
3. iInventory
i
Our
inventory, net of allowance for obsolescence of $i37,000 at June 30, 2022 and $i64,000 at December
31, 2021, consisted of the following amounts:
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic. The CARES Act allowed NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five years. Accordingly, during 2020, the Company recorded a federal income tax receivable of $i15.0 million
and an increase to its deferred income tax liability of $i10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the Company received refunds totaling $i3.9 million
related to its 2018 NOLs, which reduced its federal income tax receivable to $i11.5 million on its condensed consolidated balance sheet as of June 30, 2022.
5. iRental
Equipment
iOur rental equipment and associated accumulated depreciation as of June 30, 2022 and December 31, 2021, respectively, consisted of the following:
We
evaluated our rental equipment for potential impairment as of June 30, 2022, and determined that ino such impairment existed as of that date.
6. iCredit
Facility
Previous Credit Agreement
We had a senior secured revolving credit agreement the ("Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021. Prior to maturation, the outstanding balance of $i417,000 was repaid. The Previous Credit Agreement had an aggregate commitment of $i30
million, subject to collateral availability.
New Credit Agreement
On May 11, 2021, we entered into a ifive year senior secured revolving credit agreement ("New Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $i20
million and an accordion feature that would increase the maximum commitment to $i30 million, subject to collateral availability. We also have a right to request from the Lender, on an uncommitted basis, an increase of up to $i30
million on the aggregate commitment; provided, however, the aggregate commitment amount is not permitted to exceed $i50 million. The maturity date of the New Credit Agreement is May 11, 2026. The obligations under the New Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.
Borrowing
Base. At any time before the maturity of the New Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) i90% of eligible accounts receivable owed to the
Company by investment grade debtors, plus (b) i85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) i50%
of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $i2.0 million, plus (d) the lesser of (i) ii95/%
of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed i25 years, at such time and (ii) i80%
of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed i25 years, at such time, plus (e) i80%
of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. As of June 30, 2022, our allowable borrowing base was $i20.0
million.
Interest and Fees. Under the terms of the New Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin. "Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day; (b) the sum of the federal funds rate for such day plus i0.50%;
and (c) the Adjusted Eurodollar Rate for such day plus i1.00%. The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the New Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be i0.25%
to i0.75% for Base Rate Loans (as defined in the New Credit Agreement) and i1.25% to i1.75%
for Eurodollar Rate Loans and for requested letters of credit. In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the New Credit Agreement is in effect at an annual rate equal to i0.25% of the unused commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly.
Covenants.
The New Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the
11
Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to i3.00
to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to i1.00 to 1.00 as of the last day of each fiscal quarter.
Events of Default and Acceleration. The New Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the Credit Agreement and the other
transaction documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $i1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $i1.0
million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit agreement. Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an event of default.
As of June 30, 2022, we were in compliance with all financial covenants in our New Credit Agreement. At June 30, 2022, we had ino amounts outstanding under the New Credit Agreement.
7. iStock-Based
and Other Long-Term Incentive Compensation
Stock Options
i
A summary of all option activity as of December 31, 2021, and changes during the six months ended June 30, 2022 is presented below.
The
following table summarizes information about our stock options outstanding at June 30, 2022:
Range of Exercise Prices
Options
Outstanding
Options Exercisable
Shares
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
$i0.01-i18.00
i238,000
i3.97
$
i14.87
i30,000
$
i14.26
$i18.01-i22.00
i20,500
i0.72
i18.75
i20,500
i18.75
$i22.01-i26.00
i42,167
i2.79
i22.90
i42,167
i22.90
$i26.01-i30.00
i28,750
i4.63
i28.15
i28,750
i28.15
$i30.01-i34.00
i42,167
i1.72
i30.41
i42,167
i30.41
i371,584
i3.45
$
i18.79
i163,584
$
i23.65
/
12
i
The
summary of the status of our unvested stock options as of December 31, 2021 and changes during the six months ended June 30, 2022 is presented below:
As
of June 30, 2022, there was $i875,890 of unrecognized compensation cost related to unvested options. For the six months ended June 30, 2022 there was $i168,059
of compensation expense for stock options. For the six months ended June 30, 2021, there was ino compensation expense for stock options.
Restricted Shares/Units
On March 18, 2021, the Compensation Committee awarded i129,212
shares of restricted common stock to itwo executive officers that vest ratably over ithree years, beginning on March
18, 2022. On June 17, 2021, the Compensation Committee awarded ii5,000/
shares of restricted stock to an executive officer that vests ratably over ithree years beginning on June 17, 2022. In addition, on March 18, 2021, i5,612
shares of restricted common stock were awarded to each of our ithree independent Board members. Lastly, on April 1, 2021, i5,291
shares of restricted common stock were awarded to a newly appointed Board member. On April 26, 2022, i4,212 shares of restricted common stock were awarded to each of our ifour
independent Board members. The restricted stock issued to these directors vest in ione year from the date of grant.
Total compensation expense related to these and previously granted restricted stock awards was $i586,000
and $i896,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $i1.0
million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next i2.5 years.
i
A
summary of all restricted stock/units outstanding as of December 31, 2021 and activity during the six months ended June 30, 2022 is presented below:
Number of Shares
Weighted
Average Grant Date Fair Value
Weighted Average Remaining Contractual Life (years)
On March 18, 2021, the Compensation Committee issued a long-term incentive award of $i1.0 million to an executive officer that vests in equal, annual tranches over i3
years beginning on the anniversary of the grant date. In addition, on March 18, 2021, we issued a $i50,000 award to ithree
of our independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we issued a $i50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021. On April 26, 2022, we
issued a $i50,000 award to our ithree
independent Board members. These awards vest ione year from the date of grant and are payable in cash upon vesting. There were ino
long-term incentive awards issued to executives during the six months ended June 30, 2022. The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards was approximately $i431,000
and $i381,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $i935,550
of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next i1.3 years.
8. i(Loss)
Earnings per Share
iThe following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share computation:
Denominator
for earnings (loss) per basic common share:
Weighted average common shares outstanding
i12,305
i13,305
i12,421
i13,284
Denominator
for earnings (loss) per diluted common share:
Weighted average common shares outstanding
i12,305
i13,305
i12,421
i13,284
Dilutive
effect of stock options and restricted stock/units
i—
i—
i107
i—
Diluted
weighted average shares
i12,305
i13,305
i12,528
i13,284
Earnings
(loss) per common share:
Basic
$
(i0.01)
$
(i0.14)
$
i0.02
$
(i0.17)
Diluted
$
(i0.01)
$
(i0.14)
$
i0.02
$
(i0.17)
/
For
the three and six months ended June 30, 2022, i141,033 and i33,550
restricted stock/units, respectively, were not included in the computation of diluted earnings per share due to their antidilutive effect. For the three and six months ended June 30, 2022ii371,584/
stock options were not included in the computation of diluted loss per share due to their antidilutive effect.
For the three and six months ended June 30, 2021, ii276,319/
restricted stock/units and ii145,334/
stock options were not included in the computation of diluted loss per share due to their antidilutive effect.
9. iCommitments and Contingencies
From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable
to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.
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10. iSubsequent
Events
In accordance with ASC 855 - Subsequent Events - the Company has evaluated all events subsequent to the balance sheet date as of June 30, 2022 through the date of this report and believes nothing is required hereunder.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financialcondition
and results of operations are based on, and should be read in conjunction with, our condensed consolidated financial statements and the related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.
This report and our Annual Report on Form 10-K contain certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, and information pertaining to us, our industry and the oil and natural gas industry that is based on the beliefs of our management, as well as assumptions made by and information currently available to our management. All statements, other than statements of historical facts contained in this report as well as our Annual Report on Form 10-K,
including statements regarding our future financial position, growth strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. We use the words “may,”“will,”“expect,”“anticipate,”“estimate,”“believe,”“continue,”“intend,”“plan,”“budget” and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or revise publicly any forward-looking statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given
that these expectations or assumptions will prove to have been correct.
Please read Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, as it contains important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements.
Overview
We fabricate, manufacture, rent, and sell natural gas compressors and related equipment. Our primary focus is on the rental of natural gas compressors. Our rental contracts typically provide for initial terms of six to 24 months, with our larger horsepower units having
contract terms of up to 60 months. After the initial term of our rental contracts, many of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of our rented compressors. As of June 30, 2022, we had 1,281 natural gas compressors totaling 311,379 horsepower rented to 79 customers compared to 1,245 natural gas compressors totaling 287,365 horsepower rented to 79 customers at June 30, 2021.
We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well
pressures, production characteristics, and particular applications for which compression is sought. Fabrication of compressors involves our purchase of engines, compressors, coolers, and other components, and our assembling of these components on skids for delivery to customer locations. The major components of our compressor packages are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently require lead times between three to six months with delivery dates scheduled to coincide with our estimated production schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. Recent inflationary pressures have created price increases in both major and minor components for our compressors as well as longer than normal lead times
for such components. To date, we have been able to increase our rental rates and sales prices proportionally; however, if cost increases continue and we are no longer able to increase our rental rates and sales prices such an event could have a material adverse effect on the results of our operations and financial condition.
We also manufacture a proprietary line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line. We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished component products to other compressor fabricators. We also design, fabricate, sell, install, and service flare stacks and related ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum gases. To provide customer
support for our compressor and flare sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide an exchange and rebuild program for screw compressors and maintain an inventory of new and used compressors to facilitate this business.
We provide service and maintenance to our customers under written maintenance contracts or on an as-required basis in the absence of a service contract. Maintenance agreements typically have terms of six months to one year and require payment of a monthly fee.
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The
oil and natural gas equipment rental and services industry is cyclical in nature. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for oil and natural gas and the corresponding changes in commodity prices. As demand and prices increase, oil and natural gas producers typically increase their capital expenditures for drilling, development and production activities, although recent equity capital constraints and demands from institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of domestic exploration and production companies. Generally, increased capital expenditures ultimately result in greater revenues and profits for service and equipment companies.
In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural
gas industry, with changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices. In recent years we have increased our rentals and sales in unconventional oil shale plays, which are more dependent on crude oil prices. With this shift towards oil production, the demand for overall compression services and products is driven by two general factors: an increased focus by producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift; and declining reservoir pressure in maturing natural gas producing fields, especially unconventional production. These types of applications have historically been serviced by wellhead size compressors, and continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which have increased the market need
for larger horsepower compressor packages. We recognized this need in recent years and have been shifting our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,500 horsepower. While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression provider. In addition, recent heightened focus on the emissions profile of our customers has created a shift in demand from natural gas powered compression to electric motor compression in areas where the electric infrastructure can accommodate the energy demands of these units. In response to this shift, we have announced plans to convert up to 100 compressor packages from internal combustion engines to electric motors. The initial conversions will focus on packages in the 200-250 horsepower range.
Industry
Update
We typically experience a decline in demand during periods of low crude oil and natural gas prices. During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural gas. Commodity prices stabilized during 2021 with a sharp increase through the first six months of 2022. Historically, activity levels of exploration and production companies have been dependent on commodity prices. However, recent capital market focus on cash returns from exploration and production companies has restricted capital spending below levels that have historically been observed during higher commodity price environments. Generally, though, we feel that production activities (in which we are involved) will fare better than drilling activity. This is reflected in both the stability of our rental revenues, which is driven by production activities, and the volatility of our compressor
sales, which tends to fluctuate with capital allocations. As such, we still expect compressor sales to be low for the remainder of 2022, as exploration and production companies have elected to rent compression units rather than allocating capital dollars to purchase new compression.
Total
revenue increased 12.3% to $19.9 million for the three months ended June 30, 2022 compared to $17.7 million for the three months ended June 30, 2021. This increase was primarily a result of higher rental revenue (16.2% increase) during 2022 partially offset by lower sales revenue (18% decrease).
Rental revenue increased to $18.1 million for the three months ended June 30, 2022 compared to $15.6 million for the same period in 2021. This increase during the second quarter of 2022 was attributable to (i) an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and (ii) rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs
of our rental fleet.
As of June 30, 2022, we had 2,043 compressor packages in our fleet, down from 2,257 units at June 30, 2021 due to the retirement of units during the fourth quarter of 2021. The Company's total unit horsepower decreased to 426,811 horsepower at June 30, 2022 compared to 446,803 horsepower at June 30, 2021, due to the aforementioned unit retirements in the fourth quarter of 2021 partially offset by the addition to the Company's fleet of 27 high horsepower compressors with 13,160 horsepower over the
past 12 months. As of June 30, 2022, we had 1,281 natural gas compressors with a total of 311,379 horsepower rented to 79 customers, compared to 1,245 natural gas compressors with a total of 287,365 horsepower rented to 79 customers as of June 30, 2021. As a result, our total rented horsepower as of June 30, 2022 increased by 8.4% over the last twelve months. Our rental fleet had unit utilization as of June 30, 2022, and 2021, respectively, of 62.7% and 55.2%, and our horsepower utilization for the same dates increased to 73.0% from 64.3%. Our total rented horsepower increased by 8.4% contrasted against a 2.9% increase in total rented units. This illustrates the growing demand for our high horsepower units while the demand
for our smaller and medium horsepower units has not recovered in line with recent commodity price increases.
Sales revenue decreased to $1.3 million for the three months ended June 30, 2022 compared to $1.6 million for the three months ended June 30, 2021. This decrease is mostly attributable to decreased parts and rebuild sales partially offset by increased compressor sales during the second quarter of 2022 compared to the same period in 2021.Sales are subject to fluctuations in timing of industry activity related to our customers' capital projects and, as such, can vary substantially between periods.
Cost of rentals increased to $9.2 million during the
three months ended June 30, 2022 compared to $9.1 million during the three months ended June 30, 2021. While rental revenues increased 16.2%, this 1.8% increase in costs of rentals is primarily due to inflationary pressures on labor and parts. While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.
Cost of sales decreased 19.0% to $1.4 million during the three months ended June 30, 2022 compared to $1.8 million during the three months ended June 30, 2021. This decrease was primarily due to a reduction in unabsorbed costs related to our fabrication operations during
the period.
Selling, general, and administrative ("SG&A") expenses decreased 11.4% to $2.3 million for the three months ended June 30, 2022 compared $2.6 million during the same period in 2021. This decrease in SG&A expenses was primarily attributable to (i) a $392,000 decrease in our deferred compensation liability and (ii) a $188,000 decrease in restricted stock compensation expense. These decreases were partially offset by (i) a $160,000 increase in accrued bonus expense and (ii) a $147,000 increase in stock option expense.
Depreciation and amortization expense decreased to $6.0 million for the three months ended June 30, 2022 compared to $6.3 million for the three months ended
June 30, 2021. This was the result of a reduction in our rental fleet due to unit retirements in the fourth quarter of 2021.
We recorded an income tax expense of approximately $372,000 for the three months ended June 30, 2022 compared to an income tax benefit of $339,000 for the three months ended June 30, 2021. For interim periods, our income tax benefit (expense) is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods. Our estimated annual effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of expenses not deductible for income tax purposes.
Total
revenue increased 11.4% to $40.3 million for the six months ended June 30, 2022 compared to $36.1 million during the nine months ended June 30, 2021. This increase was primarily a result of higher rental revenue (14.0% increase) during the first six months of 2022 partially offset by decreased sales revenue (2.3% decrease).
Rental revenue increased to $35.3 million for the six months ended June 30, 2022 compared to $31.0 million during the six months ended June 30, 2021. This increase during the first six months of 2022 was attributable to an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and, to a lesser extent,
rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.
Sales revenue decreased to $4.2 million for the six months ended June 30, 2022 compared to $4.3 million for the same period in 2021. This decrease is mostly attributable to a decrease in parts sales partially offset by an increase in compressor sales.Sales are subject to fluctuations in timing of industry activity related to capital projects and, as such, can vary substantially between periods.
Cost of rentals increased 13.8% to $18.5 million during the six months ended June 30, 2022 compared to $16.2 million during the six
months ended June 30, 2021. This increase was primarily due to inflationary pressures on labor and parts as well as increased high horsepower units being placed into service. While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.
Cost of sales decreased 21.9% to $3.4 million during the six months ended June 30, 2022 compared to $4.4 million during the six months ended June 30, 2021. This decrease during the first six months of 2022 was primarily due to a decrease in parts sales.
Selling, general, and administrative expenses decreased
(8.4)% to $4.8 million for the six months ended June 30, 2022 compared to $5.3 million for the same period in 2021. SG&A expenses during the first six months of 2022 were impacted by a $597,000 reduction in deferred compensation and a $201,000 reduction in restricted stock compensation expenses, partially offset by a $340,000 increase in expected executive bonus compensation expense and officer salaries related to the recent appointment of our interim President and Chief Executive Officer.
Depreciation and amortization expense decreased 4.1% to $12.1 million for the six months ended June 30, 2022 compared to $12.6 million for the six months ended June 30, 2021. This decrease was the result of unit retirements in the fourth quarter
of 2021.
We recorded an income tax expense of $361,000 for the six months ended June 30, 2022 compared to an income tax benefit of $213,000 for the six months ended June 30, 2021. For interim periods, our income tax benefit (expense) is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods.
Non-GAAP Financial Measures
Our definition and use of Adjusted EBITDA
“Adjusted
EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as non-cash stock compensation, impairment of goodwill, an increase in inventory allowance and inventory write-offs, and retirement of rental equipment. This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in
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accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. However, management
believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because:
•it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and
•it is used by our management for various purposes, including as a measure of operating performance,
in presentations to our Board of Directors, and as a basis for strategic planning and forecasting.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under generally accepted accounting principles. Some of these limitations are:
•Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;
•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA does not reflect the cash requirements necessary to service interest or principal payments on our debts; and
•although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any capital expenditures for such replacements.
There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net (loss) income, the most directly comparable GAAP financial measure.
Reconciliation
The following table reconciles our net (loss)
income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:
For
the three months ended June 30, 2022, Adjusted EBITDA increased $2.2 million (48.7%) due primarily to a $2.2 million increase in total revenues and a $0.3 million reduction in costs of sales partially offset by a $0.2 million increase in costs of rentals. For the six months ended June 30, 2022, Adjusted EBITDA increased $2.5 million (22.9%) due primarily to a $4.1 million increase in total revenues and a $1.0 million reduction in costs of sales partially offset by a $2.2 million increase in costs of rentals.
For
the six months ended June 30, 2022, we invested $19.2 million in rental and property and other equipment by adding $18.8 million in new equipment to our rental fleet and $410,000 mostly in vehicles as well as various other machinery and equipment. Our investment in rental equipment, property and other equipment also includes any changes to work-in-process related to our rental fleet jobs at the beginning of the period compared to the end of the period. Our rental work-in-process increased by $6.6 million during the six months ended June 30, 2022. We financed our investment in rental equipment, property and other equipment with cash flow from operations and cash on hand. We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement will provide ample liquidity for our planned capital expenditures during the remainder
of 2022 and beyond.
Cash flows
At June 30, 2022, we had cash and cash equivalents of $9.8 million compared to $22.9 million at December 31, 2021. Our cash flows from operating activities of $13.2 million were offset by capital expenditures of $19.2 million during the six months ended June 30, 2022. We had working capital of $32.1 million at June 30, 2022 compared to $44.8 million at December 31, 2021. We generated cash flows from operating activities of $13.2 million during the first six months of 2022 compared to cash flows provided by operating activities of $12.8
million for the first six months of 2021. The increase in cash flows from operating activities was primarily driven by higher sales margins partially offset by higher costs of rentals during the first six months of 2022.
Strategy
For the remainder of 2022, our overall plan is to continue monitoring and holding expenses in line with the anticipated level of activity, fabricate rental fleet equipment only in direct response to market requirements, emphasize marketing of our idle gas compressor units and limit bank borrowing in line with market conditions. For the remainder of 2022, our forecasted capital expenditures are not anticipated to exceed our internally generated cash flows, cash on hand and borrowing availability under our New Credit Agreement. The majority of required capital will be for contracted, premium-priced
additions to our compressor rental fleet and/or required service vehicles. We believe that cash flows from operations, our current cash position and borrowing capacity under our New Credit Agreement will be sufficient to satisfy our capital and liquidity requirements for the foreseeable future.
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Bank Borrowings
The New Credit Agreement with Texas Capital Bank, National Association (the "Lender") has an initial commitment of $20 million, and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability. We also have a right to request from the Lender, on an uncommitted basis, an increase of up to
$30 million on the aggregate commitment; provided however, the aggregate commitment amount is not permitted to exceed $50 million. The maturity date of the New Credit Agreement is May 11, 2026. As of June 30, 2022, we did not have any borrowings outstanding under the New Credit Agreement.
Critical Accounting Policies and Practices
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations
and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. Management has determined that our critical accounting policies are those that relate to revenue recognition, estimating the allowance for doubtful accounts, accounting for income taxes, accounting for long-lived assets and accounting for inventory.
There have been no changes in the critical accounting policies disclosed in the Company's Form 10-K for the year ended December 31, 2021.
Recently Issued Accounting Pronouncements
Please
read Note 2, Summary of Significant Accounting Policies, Recently Issued Accounting Pronouncements in our condensed consolidated financial statements in this report.
Off-Balance Sheet Arrangements
From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of June 30, 2022, the off-balance sheet arrangements and transactions that we have entered into include purchase agreements. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of capital resources.
Special Note Regarding Forward-Looking Statements
Except
for historical information contained herein, the statements in this report 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 our 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 natural gas prices, which could cause a decline in the demand for our products and services; and new governmental safety, health and environmental regulations, which could require us to make significant capital expenditures. The forward-looking statements included in this Form 10-Q are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances. A discussion of these and other risk factors is included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no changes in the market risks disclosed in the Company's Form 10-K for the year ended December 31, 2021.
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Item
4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
An evaluation was carried out under the supervision and with the participation of our management, including our Interim President and Chief Executive Officer and our Vice President and Chief Financial Officer, of the effectiveness of the design of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or, the “Exchange Act”) as of December 31, 2021, pursuant to Exchange Act Rule 13a-15. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Interim President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From
time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flows. We are not currently a party to any material legal proceedings and we are not aware of any threatened litigation.
Item 1A. Risk Factors
Please refer to and read Item 1A, Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of the risks associated with our
Company and industry.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2022, we did not sell any securities which were not registered under the Securities Act of 1933. The following table summarizes our purchases of shares of common stock during this period.
1 The
table summarizes repurchases of (and remaining authority to repurchase) shares of our Common Stock.
2 The figures in the table reflect transactions according to the settlement dates. For purposes of our unaudited consolidated financial statements included in this Form 10-Q, the impact of these repurchases is recorded according to the settlement dates.
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3 On September 30, 2021, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding Common Stock in the open market (pursuant to Rule 10b5-1 plans or otherwise), block
trades or privately negotiated transactions. As noted in this column, the repurchase authorization has been expended and thus the program has expired.
Retirement Agreement dated May 17, 2022 between Natural Gas Services Group, Inc. and Stephen C. Taylor (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on May 19, 2022.)
The Executive Nonqualified Excess Plan Adoption Agreement, referred to as the Nonqualified Deferred Compensation Plan (Incorporated by reference to Exhibit 10.11 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016.)
Credit
Agreement dated as of May 11, 2021, among the Natural Gas Services Group, Inc. and NGSG Properties, LLC, a Colorado limited liability company, the banks and other financial institutions identified therein as Lenders from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer. (Incorporated by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
Pledge
and Security Agreement dated as of May 11, 2021, among Natural Gas Services Group, Inc., the Loan Parties (as defined therein) and Texas Capital Bank, National Association, as Administrative Agent. (Incorporated by reference to Exhibit 10.7 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
Note dated as of May
11, 2021, by Natural Gas Services Group, Inc. in favor of Texas Capital Bank, National Association, as Lender. (Incorporated by reference to Exhibit 10.8 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)
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 thereunto duly authorized.
